Chapter 5. Using Performance Information: Making Better Budget Decisions 181
CASE STUDY 5.2 – USING PERFORMANCE INFORMATION IN KOREA NOWOOK PARK, KOREA INSTITUTE OF PUBLIC FINANCE JUNE 2008
Introduction
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erformance-oriented budgeting is not a new initiative and has a long history in advanced countries. The first serious attempt to introduce performance budgeting occurred in the United States during the 1960s in a program called the Planning, Programming and Budgeting System (PPBS). Since then, various initiatives have tried but they were short-lived along with the administrations that initiated them. However, performance budgeting has not died out and has been gaining momentum in many countries since the 1980s. More recently the Korean government has rapidly implemented a performance management system as one component of a comprehensive fiscal reform package. The Korea case offers an interesting opportunity to observe and learn lessons. An advantage to this multi-faceted effort is, if coordinated properly, it creates a favorable environment for an effective performance management. The downside is that it demands huge resources that may not be readily available in other countries. During 2003-2007, the Korean government implemented “Four Major Reforms in Public Finance”: (1) a mediumterm fiscal plan (national fiscal management plan); (2) top-down budgeting;(3) performance-oriented budgeting; and (4) a new computerized accounting system. These reform efforts were introduced as a response to the government’s deteriorating fiscal situation. After the Asian financial crisis in the late 1990s, public debt dramatically increased although it is not particularly high compared to the average of Organisation for Economic Co-operation and Development (OECD) countries. Also the acceleration of economic inequality called for the provision of social safety nets for economically disadvantaged people. Furthermore, as the population ages at an unprecedented speed, the burden of supporting older people will become harder to bear as time goes on. These concerns motivated the Korean government to reform public expenditure management. The medium-term fiscal framework provides a five-year picture of government spending based on projected economic growth. It is intended to direct the allocation of funding among the major 14 sectors. Based on this projection, funds are allocated to each line ministry by a top-down approach. Each line ministry receives funds based on a fixed ceiling and has autonomy to decide detailed spending plans within the ceiling. In return for the autonomy enjoyed by each spending ministry, a performance management system is introduced to examine the performance of spending programs and enhance links between budgeting and performance. To provide infrastructure for the aforementioned reform programs, a program structure was developed in 2006, a computerized system was introduced in 2007, and accrual accounting was to be piloted in 2009. This case study seeks to describe the current initiative, to examine its effect, and to analyze issues involved in the implementation of the performance management system of budgetary programs in Korea. This paper is organized as follows. First, it describes the current system of performance-oriented budgeting in the Korean central government. Second, it examines its results and the effects on the budget allocation and the management of spending programs. Third, it discusses challenges of implementing performance-oriented budgeting and future directions.
Performance-Oriented Budgeting in Korea This section describes the history of performance management of budgetary programs in Korea.100 The first attempt to manage budgetary programs occurred during 1999-2002. In 1999, research on the existing various performance
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This section builds upon Park (2006).